Never has there been a better time to follow your entrepreneurial spirit and start the small business of your dreams. Overhead and startup costs are at their lowest point in years, and there are a multitude of options for acquiring seed money. Many institutions and individuals are just waiting for a solid investment opportunity to come along. However, it’s important to understand where your initial source of funding is coming from and what that means for your business. Ultimately, all money is not created equally, especially when it’s used as the initial investment in a new company.
The worldwide crowdfunding industry reported $5.1 billion in total overall growth in 2013. This makes it a viable source for funding a startup. Crowdfunding is a relatively new way of acquiring the capital to fund an idea or project. It typically works like this: An unlimited number of people, businesses or institutions invest small amounts of money into opportunities, ideas or products that show promise and longevity. Most of the capital from crowdfunding comes from people who actually use or have knowledge of the project in which they are investing.
Crowdfunding, for the most part, is an Internet-based form of investment. A large number of websites provide platforms to get your product seen by people who are willing and able to invest. These sites make it easy for investors to find intriguing projects and ideas. The key to success with crowdfunding is to have an interesting idea or product that is exciting, innovative and gets people talking.
Seed accelerators can be privately, publically or government-backed programs that not only provide funds but also mentorship, training and education from industry experts. They help you to develop and market your idea or product and connect you with other specialists in your niche. These funds are open to everyone and highly competitive.
Most accelerator programs involve five specific phases and last approximately three months. The startup owner must “graduate” from each phase and follow strict guidelines for advancement. At the end of the process, the owner holds a “demo day”. This allows them to show their idea to potential investors and consumers.
This is the traditional method for acquiring capital to start a small business. The majority of these loans come from banks and other financial institutions. In the past few years, banks have begun taking a more proactive approach to ensuring the successful utilization of the money they lend. Most institutions offer guidance and help with developing the business. They do this by instructing you on how best to invest and budget for the future of your startup. One major downside of a traditional loan is the rigid credit requirements. If you have bad or no credit, you’re probably not going to get a substantial amount of money.
Angel investors are wealthy individuals who receive equity in your company for floating you seed money to start or continue the proliferation of your products. To be an accredited Angel, one must meet specific Securities Exchange Commission (SEC) guidelines. These guidelines include having a net worth of at least one-million dollars and an annual income of $200,000 ($300,000 jointly with spouse).
There are numerous platforms available on the Internet where you can market your business to Angels investors or groups. These sites bring all the interested parties together in one place. Most Angels provide mentoring and training along with their money.
While bootstrapping isn’t necessarily a source of investment capital for a business, it is a great way to grow a startup while limiting debt and expenses. Bootstrapping is a way to utilize available resources to their maximum effect. This technique is useful throughout the life of a business and will ensure that your company always stays in the green.
You could be selling shaved ice or cancer research software, regardless, most startups fail due to lack of capital. However, throwing more money at a problem rarely solves it. The key to a successful business is to manage your cash flow correctly. Fortunately for entrepreneurs, there are now numerous ways to get the money your startup needs.
By: Isaac Christiansen